RW-Winter 2012 | Improving CRA to Increase Responsible Lending and Investing in Neighborhoods

NCRC has been working persistently to enhance the implementation of the Community Reinvestment Act (CRA). In 2010 when the federal banking agencies held hearings on improving CRA, NCRC and several of our member organizations testified and asserted that bolstering CRA was needed to increase responsible lending and investing as well as to prod banks to modify loans of distressed homeowners and engage in other foreclosure prevention efforts.

Since the hearings, the federal agencies have not proposed changes to the CRA regulation but they are currently considering reforms to examination procedures that could be motivate more bank financing for community reinvestment. In response, NCRC gathered the signatures of hundreds of NCRC members and allies for our letter recommending CRA improvements to the agencies. The letter was sent to the agencies in early October. NCRC will keep our members informed of any plans the agencies may undertake to bolster the rigor of CRA exams.

The CRA exam is a report card for banks with ratings for their lending, investing, and services in low- and moderate-income neighborhoods. If the CRA exam grades banks rigorously and fairly, banks will increase their financing for community reinvestment. Public comments can influence the overall ratings banks receive or ratings in particular geographical areas.

CRA exams will be more effective in making sure all communities are served if they engage in a full review of lending, investing, and services in a wide variety of geographical areas. Currently, the geographical scope of exams is restricted. Many CRA exams of large banks will conduct a full scope, thorough review of bank performance in large metropolitan areas but will do a limited scope, light review in smaller metropolitan areas and rural counties, even if a bank has made considerable numbers of loans in these areas.

In our letter to the agencies, NCRC proposed two possible remedies to inadequate geographical coverage. Under one alternative, the agencies could randomly select geographical areas for full scope review. Banks would not know which areas would be selected for the most comprehensive reviews so they would need to perform well in all areas (urban and rural) in which they made a significant number of loans. If the agencies do not opt for the random assignment approach, NCRC recommended that at least one smaller metropolitan area and one rural area in each state must be reviewed using the full scope exams.

NCRC also recommended a series of improvements to data tables in CRA exams. For example, community development lending and investing is often reporting in an inconsistent and/or cursory manner on CRA exams. NCRC suggested that exam tables report separate totals and dollar amounts of community development financing for affordable housing, small business financing, and economic development for each geographical area on the exam. The exam narrative should also regularly discuss innovative examples of community development financing and identify the non-profit or public sector partners collaborating with the banks so that readers of the exam can replicate innovative projects in their communities.

For the lending test, NCRC and our members have argued for several years that originating loans should count more than purchasing loans from other financial institutions. In our letter, NCRC maintained that presenting originations and purchases in distinct tables on exams would at least allow readers of exams to assess for themselves a bank’s performance in directly lending to communities. NCRC also asserted that making public input easier on exams was vital. In addition to publishing exam schedules, the agencies must indicate on their websites which staff can answer questions and which staff receives public comments on CRA exams.

In late October, NCRC also led a meeting involving several NCRC members and allies with the Consumer Financial Protection Bureau (CFPB) on implementing the improvements to the Home Mortgage Disclosure Act (HMDA) required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. These improvements include more information on loan terms and conditions, the age of the borrower, the value of the home, foreclosures, and credit score information. The HMDA changes should also bolster the ability of CRA exams to reward banks for safe and sound lending and penalize them for risky and abusive lending to low- and moderate-income borrowers. NCRC urged the CFPB to propose changes to HMDA and ask for public comments in an expeditious manner.

We will keep our members informed of developments regarding CFPB HMDA rulemaking and the banking agencies’ CRA deliberations. For more information contact, Josh Silver, Vice President of Research and Policy, at 202-464-2708, or the NCRC regional organizer for your area.

NCRC Regional Organizers and the regions they cover: